Cloud Computing and Business Value Tutorial

2.2 Cloud Computing and Business Value

Hello and welcome to second module of Cloud Computing Course by Simplilearn! In our previous module we had an introduction to the world of cloud computing. This module is about the business perspectives of cloud computing.
Let us first look into the agenda of this module.

2.3 Agenda

At the end of this module, we will understand outsourcing, the reasons for outsourcing, the similarities and differences between cloud computing and outsourcing. We will also look into the various characteristics of cloud services from a business perspectives and how cloud computing enhances the business value in several aspects such as cost, maintenance, security, user experience, scalability and Flexibility, and collaboration.
We will begin this module with understanding what outsourcing is.

2.4 Cloud Computing and Outsourcing

As we had already discussed in our earlier module, we know that cloud computing is nothing but a set of IT capabilities that are offered over a network. In terms of a business value, cloud computing is a form of quite similar to outsourcing since they share similar attributes.
So what is outsourcing? In simple words, it is sourcing a set of capabilities from an external vendor instead of using the company’s own personnel and assets. But outsourcing is not restricted to IT only. It could be used even for catering services or any other.
The major reason why companies are outsourcing is because it is a more lucrative option to the company. When companies have to work outside their capabilities it is better to outsource the work instead of building capabilities in-house. Also, in situations where it is a one-time requirement companies prefer to outsource.
We will look into few of the major reasons why companies prefer outsourcing in the next slide.

2.5 Reasons for Outsourcing

Most of the IT organizations outsource their work for several reasons. Organizations adopt cloud computing for the same set of reasons.
Cloud computing is a lucrative option as providers might have lower cost per server i.e. companies do not have to incur a capital expense by investing in servers. This can lead to capacity over build. in other words, when there is no demand, the servers remain unutilized. On the other hand, cloud allows us to deploy servers as and when we need them. Additionally, in cloud we pay only for what we use
Companies might not have all capabilities in-house. For example, managing an e-mail system might not be considered a core competence, but provisioning an external provider whose core capability is managing e-mail system creates higher or better availability.
Delay in server procurement consumes huge amount of time and effort which in turn leads to a delay in time to market. On other hand, while using cloud, servers and infrastructure can be provisioned on demand, thus saving time and effort. This allows the organization to focus on the issue in hand, say application development, testing etc. As a result the time taken for the product or application to reach market is faster.
External service providers may provide access to highly innovative software solutions and platforms.
Lastly, not owning a large data center full of servers reduces capital expenditure substantially.
Now that we are aware of the major reasons for which companies prefer to outsource, we will take a look at the commonalities between cloud computing and outsourcing.

2.6 Commonalities between Cloud Computing and Outsourcing

As we saw cloud computing and outsourcing are similar in several aspects. The common traits are:
First, reasons for adoption: Organizations adopt cloud computing or outsourcing for similar reasons. The organization might not have the right talent or might require new age which the organization is not ready for. In some instances, companies do not have capability to develop applications as they might still use outdated legacy applications.
Second, external staff: Again external staff is used as the organization might not be able to perform all the tasks whereas on the other hand external staff can be sourced to perform a number of activities such as maintaining hardware and software applications or building new applications.
Third, Provider supplier-owned assets: Assets such as servers are managed by the vendors themselves- owned assets: the vendors themselves manage Assets such as servers. Consumers cut costs by this since they do not have the necessity to build capacity.
Last, vendor lock-in :potential: Companies might get tied-up with vendors due to contractual agreements. Once a contract is signed off it becomes difficult for companies to switch to another vendor. This hurdle is overcome while using cloud computing or outsourcing.
The next slide will highlight the differences between outsourcing and cloud computing.

2.7 Differences between Cloud Computing and and Outsourcing

In terms of financial commitment, there is no upfront cost with cloud computing whereas there is minimum financial commitment in outsourcing.
Hardware and software customizations are available with a great range of choices in cloud but when you are outsourcing it is limited to what the vendor has.
Rapid scaling up and scaling down are possible in cloud which helps in better management of capacity. But outsourcing is relatively less flexible.
Contracts are highly generic in cloud with limited options in cloud but with outsourcing vendor might be open to customization.
In the next slide, we will discuss the business value of cloud for various organizations.

2.7 Differences between Cloud Computing and and Outsourcing

In terms of financial commitment, there is no upfront cost with cloud computing whereas there is minimum financial commitment in outsourcing.
Hardware and software customizations are available with a great range of choices in cloud but when you are outsourcing it is limited to what the vendor has.
Rapid scaling up and scaling down are possible in cloud which helps in better management of capacity. But outsourcing is relatively less flexible.
Contracts are highly generic in cloud with limited options in cloud but with outsourcing vendor might be open to customization.
In the next slide, we will discuss the business value of cloud for various organizations.

2.8 Business Value to Organizations

Cloud computing offers a set of benefits to any organization from a business perspective. Not all attributes of cloud computing have a positive impact on all organizations. Like we discussed in our earlier module, there are organizations which are not suitable for cloud computing. Even in companies that adapt cloud computing it is not necessary that all attributes of cloud have equal impact on the organization.
In any organization, the senior management decides whether the organization should adopt a new technology or new business model. From a business perspective, the factors taken into consideration are cost, maintenance, security, user experience, scalability and Flexibility, and collaboration.
Let us look at each of these factors in detail. In the next slide, we will evaluate the cost factor.

2.9 Cost

We will first begin with cost. Information technology can be a very expensive affair. Initially, there is substantial amount of money incurred in capital cost in the purchase of servers, storage, network, software licenses, etc. In addition, the upkeep and maintenance of these could lead to recurring expenses. This affects the budget of a company to a great extent.
With cloud computing, a huge chunk of the capital cost can be reduced. So how does cloud do this? Cloud represents a shift from capital expense to operational expense. Cloud drives better utilization of the IT resources in a company which allows them to do more with less. In cloud we do not have to buy servers, instead we can lease them for any duration of time and pay only for what we use. While using public cloud, there is a clear pay-per-use model. On the other hand, private cloud, as we know, is limited only to the organization and it is provisioned to be used by different departments. In this case, the expense incurred by each department is considered as an operational expense for the respective department. Although companies do incur capital expenses, cloud enables automation through which the cost, effort, and time are reduced. The process is optimized.
Another major advantage with cloud is its ability to scale up and scale down. Companies can invest in increments depending on the demand. This is exactly the opposite of the traditional method where the companies build capacity to meet maximum demand.
Although IT outsourcing also reduces the costs, it lacks the flexibility to scale up and scale down with ease.
In the following slide, we will discuss maintenance.

2.10 Maintenance

In any IT company, a large amount of money and effort is spent on the upkeep and maintenance of existing software, operating systems, etc. in order to maintain status quo. Companies deal with large amount of data which have to be constantly monitored. All software applications need constant upgrades. As the work and demand of the organization keeps changing with time the systems have to be changed and tuned accordingly from time to time.
In a situation like this, cloud comes in handy to companies and helps them reduce the amount of effort which in turn reduces the time spent and cost incurred. How does this happen? Any type of system management tasks are taken care of by the cloud vendor or in other words the service provider. This leaves the consumer hassle free as all these operations happen seamlessly in the background while the company can continue with their day-to-day work.
In cloud, the consumers barely know what hardware make or model is used. These are invisible to the user. But he is assured that all the upgrades are taken care of leaving him hassle free. In conclusion, cloud takes care of all the technology upgrades and risks involved with it. It also frees any capital that is tied up in age old software which is of no use to the organization anymore and finally, it exempts the staff from dedicating their time and effort for maintenance and upkeep of software applications.

2.11 Security and Risks

There are risks involved in any business and organization, especially when a company migrates to a new technology. Senior management in any organization is highly skeptical and spends time in due diligence before any new technology is implemented. With any new technology there are set of risks involved. The risks are necessary not because of the technology but in the way the technology is used. However, any new technology is implemented to beat the existing risks in the company.
With cloud, there comes a set of risks which entirely changes the risk landscape. We will look at a few factors to understand this.
Availability: As we already discussed, the specific details of location of server, hardware used, etc. are unavailable to the end user. In such instances, user might become highly dependent on the external service provider but he or she will have no control over the resources. When there is a shortage, the user might not be able to secure it on time.
Also, in cloud we know everything is completely network driven but as a user, the Internet provider might not have the control on this connectivity. If the connection fails, the server is down.
Confidentiality: All the work is done over a network. We handle large amount of confidential data and these are shared with an external service provider who might or might not be trustworthy as our own employee. The companies, which involve compliance issues, might be forced to adhere to a set of regulations and this might mean having physical access to the data. In such cases, companies might have to limit the number of cloud services they can take up.
Integrity: Cloud solutions might have the functionality to save the data from any loss or corruption. But, at the same time, since it is stored over a network with an external service provider, there are chances that data can be tampered.
The next slide discusses user experience.

2.12 User Experience

The primary purpose of developing IT applications is to enable people to perform their tasks easily and effectively on a day-to-day basis. Cloud computing can be highly useful in several aspects.
Web-based interface: All cloud applications have web-based user interfaces. In the initial days of internet, opening a simple web page took good amount of time. But over the years, with the usage of HTML and browsers that implement them, web-based applications have become superior to PC-based applications. E.g.: Google maps
Updates: Updates are seamless with web applications in comparison with bundled applications. For instance, new version of MS Office suite is released approximately in every 2 years. In any company, the IT department has to dedicate time and effort for the deployment of upgraded version. But with using the web version of the same, the updates are effortless and the users need not wait for long periods of time.
Accessibility: Cloud applications being web-based can be accessed from anywhere at any time. In any company employees, partners, and customers have the ability to access it from around the globe through a simple internet connection.
Ease of use: Cloud applications have more flexibility with their resources. E.g.: E-mail servers on cloud have larger e-mail boxes than a typical company e-mail system.
In the next slide, we will discuss collaboration and scalability.

2.13 Collaboration and Scalability

Collaboration: In the earlier days, people stayed connected by means of complicated interconnect infrastructure which has firewalls and virtual private networks (VPN). But with cloud, all services are delivered over the Internet which makes this type of communication is easier.
As we discussed in accessibility, applications can be accessed from remote locations. Besides, it allows any type of business information to be exchanged over the network.
Scalability: Ability to scale-up and scale down is an attribute of cloud we’ve discussed extensively. This attribute of cloud gives agility to a company. Imagine a company losing a business opportunity due to longer time duration spent on deployment of servers, hardware, etc. Companies could lose business to their competitors if they are not able to scale up. Also, to build maximum capacity and not to use it when demand ceases could cause huge dent on the company budget. But in cloud, we know that scaling up and scaling down happens with ease which in turn is a competitive advantage for the company. Agility means shorter time to market, better customer satisfaction, and faster revenue.
Now, we will move on to capacity planning.

2.14 Capacity Planning

Cloud is highly beneficial for business in order to maintain optimum capacity. This reduces the risk of a company buying very limited resources which can create a capacity problem. Again, it’s risky to buy too much, as well, as the capacity might no longer be useful when the demand ceases.
Scalability offers solutions for each of its platforms.
IaaS: Resources such as CPU, storage, etc. can be added and removed rapidly
PaaS: Application libraries are reused which in turn speeds up the application development
SaaS: Users can be both added and removed at short notice
In the next slide, we will summarize whatever we have learnt in this module.

2.15 Summary

We have come to the end of this module. Now you should be able to explain what outsourcing is, the reasons for outsourcing, the commonalities and differences between cloud and outsourcing. Also, we have discussed the various characteristics or cloud and cloud services from a business perspective. Finally, we have seen in detail the different aspects of cloud computing that enhance the business value of an organization.
This brings us to the end of this module. In the following slides there are a couple of questions which will help us evaluate whatever we have learnt so far. In the next module, we will discuss cloud computing from the technical perspective.